18 May 2021 - Article
Whilst forfeiture of commercial leases for failure to pay sums due under the lease is currently prevented by the Coronavirus Act, when the restriction is lifted, there are likely to be scenarios where landlords want to consider their options, and forfeiture may be among them. Waiving the right to forfeit has always been a trap that landlords can fall into and it is well known that demanding or accepting rent (or other sums due) in the knowledge that a tenant is in breach runs the risk of waiving the right to forfeit.
It is clear that:
- Demand and acceptance of sums which fell due before the breach will not amount to waiver
- Demand and acceptance of sums which fell due after the landlord knows of the breach will amount to waiver.
What has been less clear is whether demand and acceptance of sums due with knowledge of the breach amount to waiver if the sum fell due after the breach but before the landlord has knowledge of the breach. This has now been clarified by the Court of Appeal in the case of (1) Mohammed Majeed Faiz (2) Shakeela Faiz (3) Sassf Ltd v Burnley Borough Council. The Court ruled that waiver of forfeiture will occur where a landlord demands or accepts money which has become due after the date of a breach which is known to the landlord. The key date is the breach of covenant, not the date of knowledge.
The point is best illustrated by an example such as this: rent is due on 25 March and 24 June and there is a breach on 10 April which the landlord becomes aware of on 10 July. If the landlord demands or accepts the rent before 10 July, there will be no waiver. After 10 July, the landlord can accept the rent due on 25 March without it being a waiver, as it fell due before the breach, but accepting the rent due on 24 June will amount to a waiver, as it fell due after the breach.
There may be a scenario when the landlord knows of the breach but does not know the exact date of the breach. What happens then? Faiz v Burnley says that the landlord must also have actual knowledge that the sum demanded or accepted fell due after the date of the breach in order for there to be a waiver.
If a landlord is aware of a breach, or possible breach, consideration should always be given before demanding and accepting money and taking steps which may acknowledge the continued existence of the lease.